Creditors Wendy Haig ("Ms. Haig"), Greg Sadler ("Mr. Sadler") and their company, Showcase 81, LLC (together, "Creditors") appeal that portion of the judgment of the bankruptcy court holding that Creditors' claims against chapter 7*fn2 debtor Elke Gordon-Schardt ("Ms. Schardt") were not excepted from discharge in her bankruptcy case under § 523(a)(2)(A). While we AFFIRM the bankruptcy court's determination that Ms. Schardt was not directly liable for fraud, we VACATE in part the bankruptcy court's judgment and REMAND the action to the bankruptcy court to consider whether Ms. Schardt's spouse's fraud may be imputed to her.

FACTS

Ms. Haig and Mr. Sadler are a married couple who lived in Santa Fe, New Mexico. They are active equestrians, own horses, and participate in horse shows. Ms. Schardt is married to John Hans Shart ("Mr. Shart" and, together with Ms. Schardt, "Debtors"). Mr. Shart lives in Lynville, Tennessee; Ms. Schardt resides in Acton, California. Mr. Shart is the 100 percent owner of Malibu Equestrian Estates, Inc. ("MEE"). Mr. Shart and MEE operated a horse-related business under the business name Greystone Equestrian Center ("Greystone") in Lynville, Tennessee. The 85-acre parcel where Greystone operates is owned jointly by Mr. Shart and Ms. Schardt (the "Farm"). Ms. Schardt is an attorney with a law practice in Acton, California.

1 From 2002 through 2008, Creditors purchased horses from Shart 2 or MEE. Until early 2007, all of the purchased horses were 3 boarded at facilities in New Mexico not affiliated with Mr. Shart 4 or MEE.

5 Ms. Haig and Mr. Shart developed both a business relationship 6 and friendship from 2002 through 2008. Ms. Haig would purchase 7 horses and rely on Mr. Shart for training advice. They met 8 socially, with Ms. Haig occasionally staying at Greystone. 9 Even in the early period of their relationship, there was 10 considerable confusion over Mr. Shart's billing for the purchase 11 and care of Creditors' horses. On or about November 22, 2006, 12 Ms. Haig sent Mr. Shart a letter, listing payments she had made to 13 Mr. Hart or MEE between May 2005 and September 2006 totaling 14 $1,849,000.00, alleging that the payments were a combination of 15 purchases and loans, and asking Mr. Shart's help in identifying 16 the purpose of each payment.

17 In February 2007, Ms. Haig and Mr. Shart attended a horse 18 show in Gulfport, Mississippi. While at the Gulfport show, 19 Ms. Haig agreed to have at least the majority of her horses 20 boarded and trained at Greystone. Between March 2007 and December 21 2008, Creditors boarded on average twenty to twenty-five horses at 22 Greystone.

23 On or about January 23, 2007, Ms. Haig allegedly purchased 24 two motor homes, paying $245,495.00 for the first ("Motor Home 1") 25 and $240,973.00 for the second ("Motor Home 2"). The purchases 26 were negotiated and implemented with the dealer by Mr. Shart. 27 Title to Motor Home 1 was placed in Ms. Haig's name, but title to 28 Motor Home 2 was placed in Mr. Shart's name. Ms. Haig would later 1 claim that she instructed Mr. Shart to place title to both motor 2 homes in her name.

3 In 2007, Mr. Shart constructed a barn to house some of 4 Creditors' horses (the "Barn") and to provide living quarters for 5 Ms. Haig during Greystone visits and to provide four suites for 6 grooms. It is disputed whether Mr. Shart or Ms. Haig provided the 7 funds for the Barn's construction. Ms. Haig also argued that 8 Mr. Shart promised to construct the Barn as an incentive for 9 Creditors to board the horses at Greystone.

10 On May 10, 2007, Jerry and Beverly Flowers recorded a deed 11 transferring a fourteen-acre parcel adjacent to the Farm to 12 Mr. Shart (the "Flowers Land"). Title was vested in Mr. Shart, 13 but the parties dispute whether Debtors or Creditors provided the 14 funds for the purchase of the Flowers Land, and whether title 15 should have been vested in Mr. Shart or Ms. Haig.

16 On September 14, 2007, Ms. Haig allegedly paid $162,250.43 17 for the purchase of a Kenworth truck. Mr. Shart negotiated the 18 purchase with the dealer. Title to the truck was placed in the 19 name of Greystone. In her testimony, Ms. Haig alleged that, 20 although she authorized Mr. Shart to negotiate the purchase of the 21 truck, she expressly instructed him to title the truck in her 22 name.

23 Between 2007 and 2009, there were continuing disputes between 24 Debtors and Creditors regarding boarding fees, documentation on 25 invoices, and the authority of Mr. Shart to sell horses stabled by 26 Creditors at Greystone. In one instance, two of Creditors' horses 27 were sold by Mr. Shart on December 18, 2008. Ms. Haig was present 28 and objected to the sale. Given the parties' escalating 1 disagreements, on January 7-9, 2009, Creditors' representatives 2 traveled to the Farm to pick up the remaining horses. Mr. Shart 3 demanded payment from Creditors of alleged and disputed arrearages 4 before releasing the horses, and eventually ordered Creditors' 5 representatives to leave without recovering the horses. 6 On February 9, 2009, Creditors sued Mr. Shart, Ms. Schardt, 7 and MEE in state court. Haig v. Shart, dkt. no. 4394 (Chancery 8 Ct., Giles Cnty., Tennessee, February 9, 2009). The complaint 9 alleged that the defendants made multiple misrepresentations to 10 Creditors regarding the acquisition and sale of horses, and that 11 there were disputed expenses for trade shows, construction costs, 12 real estate, personal property acquisitions, and other matters 13 related to the defendants' activities on behalf of Creditors.

14 Notably, the complaint focused on the actions of Mr. Shart, and 15 only sought recovery against Ms. Schardt for "unjust enrichment." 16 On March 9, 2009, the Tennessee Chancery Court entered an Agreed 17 Temporary Injunction, prohibiting Debtors from selling any 18 additional horses or personal property owned by Creditors, 19 including the Kenworth truck.

20 Creditors' representatives returned to the Farm on March 5, 21 2009, to remove the remaining horses and personal property of 22 Creditors. Mr. Shart permitted them to remove eleven horses and 23 some other items of property.

24 By April 2009, Creditors had determined that at least five of 25 their horses were still stabled at Greystone. The state court 26 entered an order granting Creditors possession of the horses, 27 their request for injunctive relief, and authorization to inspect 28 the Greystone premises. The bankruptcy ...

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